Wednesday, May 16, 2012



Greece provides a relevant example for America

Greece, similar to all European countries, had a terrible time during World War II.  Immediately following World War II, the Greek people further suffered a civil war.

Today, we are on the verge, at least I hope we are on the verge, of seeing the best news to come out of Greece since the end of the civil war!

And that good news would be that the politicians and ordinary people of Greece have told the EU political and financial bodies to go jump in the lake!

Default on external debt

Withdrawing from the EU would mean that Greece defaults on all external debt.  Good!  It has to happen.  German banks and other banks should have analyzed the Greek economy thoroughly, as any lender should do with any loan application.   If they had done this, they would have found that loans should not be given to Greece.  Probably the German government and other governments virtually ordered their banks to lend to Greece.  These governments were so anxious to increase membership in the EU that they turned a blind eye to negative signals.

So it is not Greece's fault alone that those foreign loans were made.  Greece's situation is similar to the situation of Americans without adequate finances who were tricked and enticed into taking on sub-prime mortgages.

In 1982, an article I wrote was accepted for publication in a magazine covering government policy, current events, etc. The main point in my article is "don't borrow money from foreign organizations or foreign countries".  If everyone had studied my article and followed the principles presented, the western countries would not be in as serious a financial mess as they are in now.

My article applies to governments and to public or private entities such as electric power companies.  A government should borrow within its own country.  In this way, interest payments stay within the country and keep working in the country.

Also, foreign loans are dangerous because of fluctuations in exchange rate.  Iceland, Greece, and other countries have suffered from this phenomenon in recent years.

What happens if a government cannot borrow as much money as it needs from within its own country?  Such an event is a strong signal that the government is heading in the wrong direction.  Government policies including spending priorities must be changed to make it possible to avoid foreign borrowing.

Greece after EU!

What happens to Greece when it withdraws from the EU?

Greece goes back to the drachma and the drachma falls.  Then what happens?  Imported goods, manufactured goods and other goods, are too expensive to import.  Great!  Employment in Greece immediately increases as the Greek people increase manufacturing for their own needs.  Also due to the low drachma Greek exports would increase.

The already active Greek tourist industry would increase.  Even though people in other countries are also facing austerity, they still want holidays.  Low prices in Greece would be very attractive.

What are the lessons for America?

Immediately stop further sales of Treasury securities to foreign companies and foreign countries.  We can't afford the hemorrhage of interest payments going out to foreign holders of these securities.

Similar to Greece, if the American government can't borrow enough money without selling Treasury securities to foreigners, then the government has to undertake a complete overhaul of its operations. 

Money going out of a country to other countries is a huge burden, much greater than any domestic expenditure.

To improve the health of the American economy, to increase jobs, and to reduce government deficits, we also have to cut other foreign expenditures:

+  eliminate our net hemorrhage of over $500 billion per year that pays foreign countries to do our manufacturing for us, while our own workers stand idle

+  cut foreign military expenditures by getting our soldiers out of war zones and back home, and by cutting our military garrisons in over 100 countries

+  prohibit further purchases of American companies by foreign governments or foreign companies, in order to stop further growth of profits going out of our country to foreign countries

Parking lot for money

Despite the fact that America is broke, a foreign country or individual who wants a safe place to park money still finds America attractive, in comparison with other countries. Even if little or no interest is paid, parking money in America still does damage.  It keeps the U.S. dollar at an artificially high level.  We need the U.S. dollar to be at its "natural" level to help cut imports and encourage exports!


Sunday, May 13, 2012

Only way to save America


When asked about the damaged cherry tree, young George Washington said "I cannot tell a lie; I did it with my little hatchet."

Legend or fact, this story has been an important symbol to Americans for over 200 years.

In the last 50 years, our business and political leaders created one of the biggest voluntary disasters in world history. They sent/allowed the sending of manufacturing jobs overseas. They created a lethal competitor, China, that did not exist before, by handing China on a silver platter the jobs, the technology, and the trillions of dollars.

Huge unemployment and huge deficits in America today prove that an economy and a nation cannot survive without a high level of manufacturing activity.

The reaction of our leaders has not been "We cannot tell a lie; we made a big mistake and we must begin immediately to re-establish our former strength in manufacturing".

Instead, through servile columnists, commentators, and analysts, our leaders are telling us lies, trying to hide what really happened, like a child hiding a broken lamp or cookie jar. The lies are both childish and outrageous; the mystery is how anyone can recite them with a straight face.

Tragically, every day of lies and cover-up is another day of suffering for the unemployed, and another day of damage to our economy and to our nation.

The entirely predictable result of sending our manufacturing jobs away is an impoverished America suffering

+  a net hemorrhage of over $500 billion per year to pay foreign countries to do our manufacturing for us;

+  a hemorrhage of interest payments on trillions of dollars’ worth of U.S. Treasury securities held by foreign countries;

+ a hemorrhage of profits on substantial chunks of our economy owned by foreign companies.

How much longer can we go on in this way before we are overtaken by the complete governmental and financial chaos we see now in Greece?

If every year a family sends out much more money than it takes in, that family will be broke very soon.  A nation is no different.  Truthfully, America is already there.

We have to set aside the lies and the cover-up and take immediate action, showing the forthrightness and initiative that has always been an American characteristic.

I propose a simple and practical solution: balanced free trade in which the total value of manufactured goods imported in a year from each foreign country is limited to the total value of manufactured goods that country purchased from us in the previous year.  This policy would be implemented step-wise over three years, starting immediately.

A resolute president putting this new trade policy into effect would signal a level playing field and breathing space for domestic manufacturing. Seeing a huge opportunity, entrepreneurs would rush to ramp up or re-start existing manufacturing facilities, and create new facilities.

An immediate benefit to America would be the end of our net manufactured goods hemorrhage of over $500 billion per year.

Due to balanced free trade, giant chain stores and small stores would no longer be able to obtain enough foreign-made goods to completely fill their shelves.  They would have to carry and display American goods along with foreign goods.  Consumers could pursue the “Buy American” option, largely not available now.

Yes, to accomplish all this we would have to abrogate and refuse to abide by a raft of trade treaties and other paperwork.  The fury of China would know no bounds.  We face two choices:

+  Sacrifice America on the altar of paperwork,


+  Break the chains of paperwork and the chains of China, in order to save and rebuild America.

I know which choice I prefer!

America has 57 cities with population over 320,000, the population of Iceland.  Following the financial crash in Fall 2008, Iceland’s banks, holding extensive deposits from UK and Netherlands, were allowed to fail. Iceland has not caved in to demands from international trade bodies, UK and Netherlands for compensation. Iceland is now recovering well.

Can America be as brave as Iceland?  Yes, it can!


Tuesday, May 1, 2012

Cannot tell a lie



Childhood mess-ups

My two children are in their middle to late 40s.  In their single digits, in the rare event of a mess-up, something broken or spilled, I would say "I won't be angry but please tell me what really really happened".

We have the example of George Washington and the cherry tree.  When asked about it, young George said "I cannot tell a lie; I did it with my little hatchet."

Legend or fact, this story about George Washington has been important to Americans for over 200 years.

Adult mess-ups

In the last 50 years, our business and political "leaders" created one of the biggest mess-ups in world history.  They sent or allowed the sending of manufacturing jobs overseas.  They created a lethal competitor, China, that did not exist before, by handing China on a silver platter the jobs, the technology, and the trillions of dollars.

The status of America today, with huge unemployment and huge deficits, is proof that a nation and an economy cannot survive without a full measure of manufacturing activity.  Already in the 1970s the damage to our manufacturing sector was apparent. But our business and political "leaders" took no notice and continued the process for another 30 to 40 years until now when it has become obvious to all ordinary Americans that sending the jobs away has created our present problem.

The non-George Washington response

The reaction of our "leaders" has not been "We cannot tell a lie; we made a huge mistake and we must begin immediately to change course and re-establish our former strength in manufacturing".

Instead, our "leaders" are telling lies, to try to hide what really happened, like a child hiding a broken lamp or cookie jar.  The lies are so childish and outrageous that it is amazing that anyone can spout them with a straight face.

About a year ago I started writing about what I called "fantasy explanations" of how we got to the terrible situation we see today.  But now a whole new generation of fantasy explanations, i.e., lies, can be seen.

New crop of lies

In this new crop of lies, everything has been turned 180 degrees.  Now, instead of the FACT that sending away manufacturing jobs has severely damaged the middle class, we hear the LIE that lower quality education has done the damage.

We hear the LIE that the wrecking of the economy is due to parents not raising their children correctly.  We hear the LIE that "mollycoddling" our children is a big factor in the wrecking of our economy.

There is a whole army of analysts, writers, and commentators working night and day to come up with these new, tremendously complex, intricate lies, filled with irrelevant/trivial issues, to explain our present situation.

Real, irrefutable, facts

Our business "leaders" began in the 1960s to send our manufacturing jobs away for the short-sighted reason of trying to increase profits by using lower-cost workers.  Over the next 50 years, thousands of companies jumped on the bandwagon.

The predictable result is that our country is now hemorrhaging over $500 billion per year to pay foreign countries to do our manufacturing for us.  This money is real money that we are sending to foreign countries, with the result that our country is impoverished.

While we send away over $500 billion per year ($1.4 billion every day), our own workers sit at home in despair (if they have homes), or stand in line at unemployment and welfare offices.

This is the giant hidden cost of "low-cost" imported manufactured goods.

What our business and political leaders pretend not to know

(Or maybe they really don't know)

Manufacturing enriches the economy in which it occurs.  Finished goods that consumers want to buy and use are more valuable than the materials and supplies used in their manufacture.  Even if the goods were made 100% by robots, the enriching effect occurs.

Manufacturing creates ripple and multiplier effects:

+ Other business firms provide components, sub-assemblies, materials, and supplies to manufacturing facilities.

+ Other business firms hire designers, engineers, technicians and manufacturing workers to build, sell, install and service robotic equipment.

+ Manufacturing creates a more complex economy in which people with many types and levels of skills can find employment.  

+ A critical mass of scientific and engineering skills and knowledge is created because everything is done together: design, engineering, manufacturing, problem solving, not separated by 10,000 miles.

Present and future

President Obama has been in office for almost four years.  It is a great disappointment to everyone who supported him that he has failed to act to increase manufacturing in America.

Nevertheless, manufacturing is coming back to America, due to the immutable laws of economics.  When a wealthy country trades with a low-wage country, wages in the wealthy country go down and wages in the other country go up.  We are now at the point where overall manufacturing and operating costs in America are in many cases competitive with costs in China and other "low-wage" countries.

A recent survey of 106 large American companies found that 37% of the companies are seriously considering bringing manufacturing back to America, or have definite plans to do so. 

The  only thing missing is that we need the manufacturing to come back more quickly.  Millions of unemployed Americans are having trouble keeping bread on the table. They can't wait five or ten years.

My simple solution

My simple, fair, and reasonable solution, as stated in previous posts, is to limit the total value of imported goods coming in from each foreign country to the total value of manufactured goods that country buys from us.

The immediate and hugely beneficial result is that the $500 billion plus yearly hemorrhage is wiped out. 

Further, with this simple program in place, entrepreneurs would rush to ramp up or re-start existing domestic manufacturing facilities, and create new manufacturing facilities.

Management of giant chain stores and small stores would have to carry and display American-made goods along with Chinese goods. They would not be able to continue their apparently preferred but short-sighted method, i.e., carrying Chinese goods exclusively. 

A win-win for everyone and for America!